Bob Schneider is a Partner in 
Wilson So is the Director of Hitachi Consulting Corporation XBRL: An Interview with Neal Hannon (Part 3)
Neal Hannon is an XBRL consultant and the former Director, Financial Reporting Technologies for the Financial Accounting Foundation (FAF). Prior to joining the FAF, Neal was a member of the accounting departments at the University of Hartford and Bryant University. In addition, he has held various controllership positions with companies such as United Technologies and Monsanto. Active in the XBRL community since 2000, he served on the first XBRL US steering committee and has written over 60 articles on XBRL. You can contact him by email.
This is the third and final installment of a three-part interview (Part 1 has questions one to four, Part 2 has five to eight.)
(9) In your article Why the SEC Is Bullish on XBRL, published in January 2006, you noted that the enhanced review of periodic disclosures under Section 408 of the Sarbanes-Oxley Act (SOX) was another factor propelling the SEC to support interactive data. Three years hence, how important do you feel this element has been in driving the SEC’s actions?
Very significant. The SEC is required by SOX each year to report progress on Section 408 to Congress. Section 408 requires each SEC filer to be thoroughly reviewed once every three years. The SEC’s annual report gives some detail regarding this requirement, but with the number and length of current filings growing rapidly with each passing day, manual systems just cannot keep up. The SEC has two strong principles guiding all its activities: the first is capital market protection, and the second is investor protection. They cannot perform either task with excellence without help from electronic submissions.
XBRL, a clear and strong initiative under Chairman Cox, becomes increasingly important in today’s environment. The regulatory environment is swiftly moving toward stronger checks and balances, and the SEC is caught right in the middle. The new SEC Chair, Mary L. Schapiro, has prior experience at both the SEC and at the Commodities Futures Trading Commission. There has also been talk of combining and consolidating regulatory bodies. XBRL should be the key to establishing a common method for collecting and analyzing all compliance-related data.
(10) In the same January 2006 piece, you write “Given the SEC’s track record for incorporating advances in technology into the filing process, the movement to interactive data isn’t a question of if, but simply a question of when.” Does this mean you see the SEC as consistently adapting new technology to the filing process, albeit sometimes later than sooner? Now that the final rule has been approved, do you see the SEC as being a world leader in implementing XBRL to the financial reporting process?
The SEC is very good at signaling their intentions. First, the Chair speaks about an issue at a public conference. Then, the Commission schedules panel discussions and then proposes a draft rule. The draft rule is subjected to comment, webinars, panel discussions, and more public speeches. By the time a final rule is ready, the Commission has created a trail that’s easier to follow than an Easter egg hunt for toddlers.
Regarding the use of technology, the SEC is both a leader and a follower. It takes the lead when they show other regulatory bodies how to regulate their securities markets: the SEC has provided training for more than 1,900 foreign capital market officials from 125 foreign jurisdictions in fiscal year 2008 alone. But it is also a follower and learns from governmental bodies such as the Netherlands and Australia .
(11) In your presentation XBRL for Internal Reporting, you discussed how XBRL can be used in conjunction with Web services to improve current financial reporting processes. One interesting phrase you highlighted in your talk was “wrap and map.” What does wrap and map mean, and how does it fit with a service-oriented architecture (SOA) approach to financial reporting?
Wrap refers to the adding of metadata to business facts in a way that creates uniform understanding and usability of the fact. Map is the function of taking the wrapped data and mapping it to analytical systems or to business intelligence software so that the organization can turn raw data into actionable information. The underlying concept for both terms is a change from document-centric systems to data-centric systems. If the data is created accompanied by uniform metadata, it can exist outside of the program or origin. For example, the current asset “inventory,” when extracted from an ERP system as just a number, can only live outside its system as a numerical aggregated fact. If the data were extracted wrapped in its associated metadata, the data would be much richer.
As Wikipedia defines it, “SOA provides methods for systems development and integration where systems group functionality around business processes and package these as interoperable services.” To me, an SOA environment coupled with wrapped data that can live outside its native application combines two very powerful information ideas. In turn, businesses can unlock both the business processes and the data to work in harmony to produce better information in a more efficient manor. Financial data wrapped in XBRL (preferably marked up in XBRL-GL) that can be easily fed into real-time analytical systems provides a one-two punch that should result in better business information.
Recent talk about the “death” of SOA focuses squarely on whether the architecture of the system is the answer or is it actually the service delivered. I believe that delivering data wrapped in rich metadata can provide the “service” that businesses really need, i.e., actionable data. Re-organizing IT to deliver access to systems without doing the underlying work to make the data functional outside the native application is like putting a football uniform on the world’s fastest human and expecting him, without any understanding of the rules of the game, to score in every game. Services that deliver the right data in the right format to solve real business problems are where we need to be.
(12) In a recent post on his blog, Mark Cuban extolled the benefits of XBRL and wrote “In fact, President Obama’s use or lack of use of XBRL for government will be a beacon as to just how much transparency we can expect from his administration.” How would you evaluate Mr. Cuban’s standard for rating Mr. Obama?
President-elect Obama has a stronger mandate for change than the one George W. Bush assumed in 2000 and 2004. Given our current economic mess and the blame game normally played in Washington, more regulation is likely to be on the agenda for business. Greater transparency, I believe, will be a welcome by-product, not the driving force behind the inevitable structuring of regulatory agencies.
I am hopeful, however, that President-elect Obama will have the foresight to not only improve our regulatory system, but also to reduce the burden on companies by demanding that all government data be collected using the XBRL common platform. This move would save US businesses billions and streamline the government’s ability to receive actionable data from the economy.